A commercial lease agreement is a crucial document between a landlord and a tenant, outlining the terms and conditions of renting a commercial property. It defines the responsibilities of both parties and protects their interests during the lease period. In this article, we will discuss the importance of a well-drafted commercial lease agreement and provide a comprehensive template that can be easily downloaded and customised to fit the specific needs of your rental property. Whether you are a landlord or a tenant, having a solid understanding of the terms outlined in a commercial lease agreement is crucial to ensuring a smooth and successful tenancy agreement.
What is a business lease agreement?
A business lease agreement is an agreement that is in place for those who are tenants to landlords who own commercial property rather than residential property. This is the main difference.
Typically, a business lease agreement will be used interchangeably as the name of a commercial lease agreement. They mean the same thing.
How do long and short commercial lease agreements differ?
Commercial lease agreements are usually in place for a lot longer than residential lease agreements. This is due to the fact that a commercial property contains a business and businesses make plans for longer.
For example, if there is a commercial client who is looking for somewhere to rent, they would have a business plan and potentially a long forecast of how they expect their business to perform.
Typically, the larger the company that starts renting and the larger the rent, the more likely it is that this company will start renting for longer.
What is included in a commercial lease agreement?
In this document there are things that have to be signed for both the landlord and the tenant. It is vital things are laid out clearly and nothing is left out of the agreement.
Background
The first thing that should be included in the agreement is the background section, this outlines what the agreement is and if there are any obscure terms in the document and what they mean.
This ensures even someone who isn’t familiar with this type of document is able to understand it which could prevent legal issues down the line.
Rent
The rent is a big feature of a commercial lease agreement as in this section of the agreement, the amount of rent that is being charged as well as how this works out spatially in rent per square foot is stated.
If the rent is going to increase on an annual basis or the terms and conditions round any rent increases should be written in this section of the agreement
Utilities
In this section of the agreement, a landlord should provide all of the utilities for the building. This is especially important if the commercial building will house tenants with a large equipment need.
For example, if the commercial tenant is a restaurant, they may have some equipment provided by the landlord like a cooker but the rest they could have to purchase themself.
Disputes during lease period
Information around how to contact the landlords in the event there is a dispute should be given in this section of the commercial lease agreement template.
On top of this, if there are any third parties such as a management company or who to contact should be given.
It is also optional here to include how the court process works including how to collect any evidence, raise a dispute and how to sue a landlord.
Another optional part of this part of the agreement is the option to have a mediator in case someone disagrees during the tenancy.
A mediator is a professional that is assigned to an agreement so that the matter doesn’t have to be escalated to court.
While court is still an option, it becomes a worst case scenario and the idea is a mediator will do their best at resolving anything before it gets this far.
Deposit
Unlike in a residential property and more similar to lodger agreements, a security deposit doesn’t have to be protected in a tenant deposit scheme for commercial deals.
Instead, a lot of landlords will include a rent deposit deed which displays more information about how a security deposit is kept.
This is most often a separate document but a brief overview of this document including the main details like the amount of money in the deposit should be given in this section of the document.
Insurance
In a commercial lease agreement, there is likely going to be insurance covered and paid for by either the tenant of the landlord.
If this is covered by the tenant, then details about the insurance have to be provided. For example, what is covered and to what extent.
As a result, if a tenant finds that the insurance provided by the landlord is unsatisfactory, they can choose to take out additional insurance or potentially ask the landlord to add terms to the insurance provided.
The notice period of the insurance in the event that the insurance company were to end the insurance cover is provided also.
If a tenant chooses to take out their own insurance, then evidence that it has been taken out must also be provided to the landlord and this should be in advance of the tenancy going ahead.
It is reasons like this why commercial agreements are seen as more complicated and a lot of landlords will just hire one tenant who will sublet the property out to other tenants to save them the effort and potential risk of doing something wrong.
A landlord’s access to the premises
Under legislation in the UK, a landlord in a commercial property can enter the premises where they have a commercial tenant within 24 hours if they issue the correct notice.
They may enter in order to do things like inspections, maintenance, repairs, services and perhaps bring around prospective new tenants to the property.
The rules around this should be highlighted here in this section alongside how in the last three months of a commercial tenancy a landlord should be able to have the right to actively display a property for rent.
Notice period
As a property is let out, the notice period that should be given if the landlord wants to move on should be included in the agreement in this case. Typically, notice periods are longer for commercial properties.
For example, in an excluded tenancy agreement which is a residential agreement, landlords only have to give a notice of as little as a week. In a commercial deal this can be up to three months
Further General Provisions
If there is anything confusing about the agreement, this is where those confusions are rectified. For example, it should be made clear what type of agreement it is.
Things like stating what-if scenarios for example if the tenant is part of a joint venture or the tenant is under 18 should be highlighted here to prevent any confusion.
In the example, commercial lease agreement template below, a list of these scenarios are given if you’re not sure what is meant by this.
Signatures
Finally, the document should be signed by the landlord and the tenant like most tenancy agreement templates. Here, the length of time that the property is going to be let out should be stated.
In this section of the agreement, it may be worth stating when the agreement will end, the address of both parties, dates of birth of both parties and the date of the signature.
For long term tenancy agreements, it could be worth adding in a clause where the contract is open for negotiation if it is clear that the contract will go on for quite a while.
Commercial lease agreement template download
Below, a template with all of the sections above will be available for download. Make sure you read over all of the terms of the agreement as you may not agree with everything.
The agreement is set up so that it covers everything you need to legally rent a property in the UK.
Download your template here
You can download your commercial agreement template by clicking here
What is an execution of deeds?
An execution of deeds is where both parties, the landlord and the tenant, sign separate documents that are both related to the tenancy agreement they have and then they combine them to create one agreement.
This means both of them can go away and speak with their individual solicitors so they can get the specific legal advice for them and then be confident they are signing the right thing when they’re ready.
In conclusion
All in all, there are a lot of terms involved in a commercial agreement template and there are certainly a lot more terms that are involved in the agreement than a residential agreement.
In order to make sure you’re creating the right commercial agreement for you, make sure you go over all the options terms carefully and download the commercial agreement for reference.
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